The Travel Agents Respond
Commission cuts, online booking fees, expense reporting software, e-tickets — corporate travel agents seemed under attack from every direction during this period. What of the view from where corporate travel agents themselves sat? Said the travel magazine Smart Business:
Consider the Internet from the travel agent’s perspective: Direct online booking threatens your reservation and ticketing business. Automated policy compliance grabs your backoffice work. Global access to data robs you of control and undermines your value to clients. … Rising to that challenge is more than a question of growth for corporate travel agents in the age of the Internet. It’s a matter of survival. (1)
Kevin Mitchell, the head of the Business Travel Contractors Corp., captured the sense of powerlessness agents must have felt.
Travel agencies have had incomes cut twice in as many years, without notice. Most travel agencies now feel virtually powerless in an equation where major airlines exercise market power to shift costs and dictate terms and conditions. While few would dispute an airline’s right to change its commission structure, no business responds well to unexpected news that impacts its investment strategies and earnings, and disrupts its best customers. (2)
Hal Rosenbluth, president of mega-agency Hal Rosenbluth International, predicted that the smaller firms would find it hardest to adapt. He foresaw the demise of many of the smaller firms.
For those who are trying to engage in the corporate arena, anybody with less than $100 million in air sales is going to have a struggle. They just don’t have the technology, the financial and the human resources and the deals in place with the suppliers to compete with the larger regional or mega agencies. If they couldn’t restructure their arrangement with their clients on a fee basis, they’re struggling because they effectively lost about 20 percent of their revenue. (3)
Travel agents who responded to this accelerating technological revolution spoke into something of a vacuum. They were no longer needed by a large group of the most prestigious corporate travelers, many of them Fortune 100, 500, and 1,000 companies. They were no longer needed by their former colleagues in airline circles. And their colleagues made no bones about wanting them removed from the loop. Some responded by leaving the business voluntarily, disheartened by prospects in the Age of Automation. Revealed Rosenbluth, “travel management firms are having a hard time finding good agents. Many good travel service associates have left the industry scared off by their companies talking incessantly about technology. Technology talk, not the reality, has created a problem as much as it has solved one.” (4)
Those who stayed responded in a predictably confused manner, making their case to each other and to business travel. Some reported events with a sense of dread. Here is Travel Counselor magazine (published by the same company that publishes BTN — Miller-Freeman)on the subject.
Reports of the death of the travel agency industry may be premature — but they’re getting awfully hard to avoid. Crack open a magazine or tap into the Internet these days and you’re almost guaranteed to feel the cold wind blowing.
Consider the London-based Economist magazine…. In travel, it said, “Expect a growth of on-line bookings. In Britain alone, the market is set to grow from less than $1 million in 1997 to $1 billion by 2002. This will drive many travel agents out of business.”
… A dispatch from Communications Week made the e-mail rounds on the Internet last month, reporting that the president of “a major national travel agency” was predicting “a massive downsizing” as a result of Internet competition. (5)
Some responded angrily at the travel consumers. Significantly, the same 1996 NBTA annual conference which heralded the new era in travel automation voted down a proposal for the fifth year in a row to allow travel agencies into the organization. When some members asked why, BTN reported: “[Opponents] pointed to ongoing competition between travel managers and agents, and fears of having NBTA overrun by overwhelming numbers of agents.” BTN covered the upset response of some mega-agencies who were exhibiting at the show. Even though they were producing ATSs too, having jumped on the bandwagon, as an agency, they sensed their growing isolation within corporate travel.
With big bucks invested in sponsoring events and taking booth space at the show, several participating mega-agency executives were not overly pleased. Said one, “See this badge? It says non-member. I have to wear it. You know what it really says. ‘You’re outside. You don’t belong.'” (7)
Others responded angrily to the suppliers.
But when hotels followed suit with their own commission cuts, one travel agent’s indignation spilled over. Beverley Bouchard, president of Traveling Inc., said she had complained to the hotel manager about a $32 commission on a $700 booking for a Promus hotel. Bouchard said the manager told her he hoped the limit would not affect their relationship. She replied “Give me a break. Do you think I’m going to work for you for nothing?” (8)
Others took events philosophically but reported a loss of trust. Jack Alexander, CEO of WorldTravel Partners, contributed a witty but accurate reading, calling it a “‘trussed’ issue.” (9) Travel agents were the turkeys, trussed, basted, and served up for the corporate-travel Thanksgiving dinner. He summarized the bleak developments:
It appears that the travel agent’s lot in life is going to get worse before it gets better. The market thinks that we have been paid too much…. The airlines no longer need a “rebate buffer” to avoid corporate discounting that is commonplace today. And travelers can easily book themselves through on-line options directly with the carriers. (10)
Trust appeared to be a casualty all around in these years, as it is wherever uncontrolled automation is allowed to capture work. This case study shows automation not capturing a few jobs, but eliminating whole occupations (corporate and airline booking agents). Observed BTN: “The airline industry suffers from deep mistrust among many parties. Airlines don’t trust travel agencies, consumers don’t trust airlines, corporations don’t trust airlines and travel agencies may never trust their airline distribution ‘partners’ again.” Rather incongruously, given its own role in matters, it reminded its readers: “Mistrust is very costly.” (11)
While the smaller agencies lacked the resources or financial position to drive technology, some of the largest travel agencies — the mega-agencies — became technology vendors themselves. (12) “We have now become a software provider, which is a bit unusual for a travel company,” said the president of mega-agency Carlson-Wagonlit. (13) This was not a solution that would help agency employees. It simply drove the automation process further. BTN covered the trend:
An increasing number of travel management companies today are positioning themselves as total solution providers and doing whatever it takes to deliver on the promise. From building their own T&E [i.e., travel and entertainment] expense software to private labelling a third-party system to serving as value-added retailers to acting as technology consultants, travel management companies are expanding into expense management and systems integration. (14)
American Express chose briefly to use its clout to fight back against what it perceived as its new business opponents. After their commission cuts, AmEx eliminated schedules, fares, and availability for United, Northwest and KLM from its online website and America Online. “We continue to list American and Continental, as they’ve recognized the agency services we’re providing,” said spokeswoman Melissa Abernathy. “We feel the commissions that United and Northwest are offering don’t cover our operating costs.” (15)
Of the ordinary troops who chose to soldier on, some chose a concliatory path, putting blame behind them. Said Caldwell Associates travel consultant Susan Stowe: “There has been a lot of emotion about change and resentment that the airlines acted unilaterally. As an industry, we need to move beyond that. We have been confronted with a permanent change in the three-way financial relationship among airlines, agencies and corporate customers.” (16)
Most of the nucleus who remained supported travel-agency fees for service, to replace unpredictable sources of revenue like airline commissions and overrides. Reports of moves in this direction were closely watched, wherever they happened. Typical of updates was this one:
Canadian travel managers and agents predicted that the caps would speed the transition from revenue-share contracts to fee-based contracts, transforming the [travel] agencies role. Sources also said the move will spur net fare deals and a greater focus on cost controls. (17)
Warned Carlson-Wagonlit: “Customers … are expecting us to come up with this concept on how to manage travel, research it and come up with the best solutions. In the past, we did that for free. No more.” (18) Agreed Mike Spinelli, president and CEO of the American Society of Travel Agents:
There are many financial options available, one of which is a direct payment of a travel agent management fee that eliminates the need to renegotiate their agency compensation package every time the airlines decide to alter commissions.
An agency management fee is a great option for buyers because it enables the agency and the corporation to work together to determine the exact services needed and a forum in which to apply cuts. This type of compensation package creates an open business relationship with no surprises brought on by a change to the commission structure. (19)
He denied that corporate travel managers would leave travel agencies, who were their traditional partner in business.
The recent airline commission cut by the carriers means one thing for the business traveler — higher costs. …
However, does this latest cut mean that an overwhelming number of corporations are going to move away from using travel agents and make their own travel arrangements? Absolutely not.
The instruments that would allow corporations to book their own travel — 800 numbers, direct-booking software, the Internet, etc. — have been in place for years, yet an overwhelming number of corporations continue to use travel agent services.
Why is this? For the same reason that travel agents book such a high percentage of vacation travel — it makes good financial sense. Corporate buyers recognize the exorbitant costs associated with booking travel themselves (limited options, unproductive hours spent on hold), and they’ve come to rely on their corporate travel agency to implement travel policies to save the company money, negotiate preferred supplier relationships and save time, and provide corporate reporting that tracks expenses and savings. (20)
Agencies stressed the service that agents provided as the value they added to the travel equation. Said mega-agency CEO Hal Rosenbluth, “while technology is important, it will never replace good travel service associates.” (21) Declared Roger Black at Carlson Wagonlit in Travel Counselor magazine: “No one wants to see us disappear. Everyone wants to see us sell more of their particular product.” (22) His prediction was optimistic; it may have been naieve.
Said travel management consultant Ralph Brown: “In 1997, most companies on the leading edge will be doing electronic bookings. We have to adapt to that.” (23) Adaptation for those who could not become technology vendors meant cost-cutting. Everyone looked for ways to provide better service at lower cost. Advised Aquarius Travel president and CEO Domenic Pugliares:
Along with the natural desire to keep up with trends and technologies, there is a basic pocketbook reason for all of us in the business to be innovative: When Delta Airlines capped commission for all domestic flights at $50, it has to be considered a harbinger of things to come throughout the industry. Now, the goals are not simply to provide a level of information and service at an acceptable cost. The new realities demand better service, better information and lower costs. (24)
Every way of cost-cutting was examined. Ely Lilly travel manager George Odom urged his fellows: “We’re saying we can be smarter in the way we buy things. Can we bundle it together? Can we break it apart? Can we bring different groups together to buy things at the same or better quality at a lower price?” (25) Asked Kevin Mitchell, president of Business Travel Contractors Corp.:
Can your agency survive and make a profit with 8 percent commissions? Probably – if it has reengineered its procedures [and] eliminated unnecessary staff positions. … Have you streamlined internal and agency processes as much as possible? Are you using electronic tickets? You may want to accelerate review and decision making on automated self-booking and T&E reporting systems. Once you achieve significant usage of e-tickets and self-booking, agency fees should be reduced. (26)
Not all industry observers were certain that corporate travel agencies would survive the advent of ATS technology. Said Jere Glover, chief counsel for advocacy at the Small Business Administration, after the 1996-7 round of commission cuts: “We’re worried. We are concerned … that we are spreading fewer dollars among more businesses. … It’s too early to know what impact that is going to have and whether the industry can adjust.” (27)
Technological developments like ATSs, T&E systems, e-tickets, and smart cards pleased the corporate traveler or the travel manager, who found them faster, easier, and less expensive. From where they sat, technology was an unmitigated good. Therefore the application of technology and the demise of the agency and airline booking agent was seen through rose-tinted glasses. The machines did indeed do the job better. That fact is not disputed. It is whether we can afford to eliminate group after group, without any thought being given to their ongoing well-being, whose only crime is to have been bridged by the computer. Does automation’s capture of work go on forever? At what point does it end? And who will be left standing? The travel manager? He or she is also a middleman. The technology vendor? The airlines have the ability to price in a predatory fashion to eliminate new start-ups as easily as it did the agents.
When the machine captures all the work that it does better and very few people are left with gainful employment, when sales fall because consumers have no money, when government revenues tumble because taxpayers are getting poorer or paying nothing, will the shoe fit then? Or will it begin to pinch so much that more and more friends of automation will cast it off and pine again for a business landscape full of gainfully-employed people?
Footnotes
(1) “Travel Agencies and the Internet: A Strategy for Survival,” Smart Business, 28 April 1997, A1.
(2) Kevin Mitchell, “Airlines Wield Unfair Leverage,” BTN, 8 Dec. 1997, 13.
(3) Hal F. Rosenbluth in “Travel Agencies,” BTN. 26 May 1997, 14.
(4) Hal F. Rosenbluth, “Keep Focus on Service,” BTN, 14 Apr. 1997, 10.
(5) Gary Langer, “Welcome to the Deathwatch,” Travel Counselor, February 1998, 14.
(6) Cheryl Rosen, “Industry Goes Intranet,” BTN, 19 Aug. 1996, 26.
(7) Loc. cit.
(8) Kate Rice, “Promus Limits Commissions,” BTN, 28 April 1997, 4.
(9) Jack Alexander, “For Travel Agents: A ‘Trussed’ Issue,” BTN, 26 Jan. 1998, 14.
(10) Loc. Cit.
(11) Kevin Mitchell, “Airlines Wield Unfair Leverage,” BTN, 8 Dec. 1997, 14.
(12) Sarah Welt, “Corporate Agencies Implement Point-of-Sale Systems,” BTN, 26 Jan. 1998, 51.
(13) “Carlson Pres Takes Stock of Americas,” BTN, 14 April 1997, 35.
(14) Mary Ann McNulty, “Agencies Expand Their Expense Reporting Roles,” BTN, 9 June 1997, 13.
(15) Cheryl Rosen and Mary Ann McNulty, “UAL Cuts Online Commissions to $10,” BTN, 28 April 1997, 53.
(16) Susan Stowe, “How to Adapt to the Commission Cuts,” BTN, 10 Nov. 1997, 15.
(17) Jay Campbell, “Canadians Uncap Borders,” BTN, 19 Aug. 1996, 6.
(18) “Carlson Pres Takes Stock of Americas,” BTN, 14 April 1997, 35.
(19) Mike Spinelli, “Direct Supplier Links Won’t Replace Agents,” BTN, 10 Nov. 1997, 14-5.
(20) Ibid., 14.
(21) Hal F. Rosenbluth, “Keep Focus on Service,” BTN, 14 Apr. 1997, 10.
(22) Gary Langer, “Travel Agency Compensation,” Travel Counselor, Feb. 1998, 42.
(23) Brown in Mary Ann McNulty, “Benchmark Software updated,” BTN. 28 Oct. 1996, 4. See also Susan Stowe, “How to Adapt to the Commission Cuts,” BTN, 10 Nov. 1997, 15.
(24) “Innovation Improving Service, Data, Costs,” BTN, 7 Oct. 1996, 10.
(25) Ely Lilly travel manager George Odom in Jay Campbell, “E-Tix Accord Set,” BTN, 28 Oct. 1996, 34.
(26) Kevin Mitchell, “Airlines Wield Unfair Leverage,” BTN, 8 Dec. 1997, 13.